The financial damage is massive and the question boils down to how far the contagion can spread throughout Europe (and elsewhere).  Austerity measures throughout Europe are now backfiring.  France put in Hollande as a move back to the left as Sarkozy’s austerity measures were just going to be too great for the population to want.  Inflation before cutbacks!  Live well today, let the kids figure it out when hey get older!  Hell, even The Netherlands could not agree on a budget and they have their act together financially just about as well as any of the top nations.  Angela Merkel’s party suffered a regional election loss in recent weeks as well.

Greece will not likely be the only casualty here.  Portugal, Spain, and Ireland are all at risk.  Sinn Fein has been making policy statements about austerity and the Euro inclusion and went as far as issuing a video to call for a NO vote in the Austerity Treaty referendum.  Spain has a serious capital shortfall in its banks if the reports over the size of the property value losses versus face value of loans is even only one-third true.  Portugal is just totally irrelevant to Europe, but it is upside down and at risk.  And Italy is just simply “too big to bail” with its debt and spending issues that lie ahead.

The fallout is running top to bottom… safe havens to PIIGS… We are seeing all the new 52-week lows come into play in some positions while many others are still above those recent lows.

iShares MSCI Germany Index (AMEX: EWG) is down 2.2% at $19.87 against a 52-week low $16.96; iShares MSCI France Index (AMEX: EWQ) is down 2.4% at $18.61 against a 52-week low of $17.88. The there is “the Euro currency ETF” via the CurrencyShares Euro Trust (AMEX: FXE) with a drop of 0.9% at $125.03 (new 52-week low) as the Euro is at the lowest point since July 2010.  iShares MSCI Italy Index (AMEX: EWI) is down 3.8% at $10.26 and only one-penny above the $10.25 52-week low.

Ireland… The Bank of Ireland (NYSE: IRE) is down 2% at $4.90 against a 52-week low of $3.99. The New Ireland Fund, Inc. (NYSE: IRL) is down 1.1% at $7.79 against a 52-week low of $6.49.

Greece… National Bank of Greece SA (NYSE: NBG) is flat at $1.52 against a 52-week low of $1.45; Global X FTSE Greece 20 ETF (AMEX: GREK) is down 3.5% at $9.99 at a new 52-week low (prior $10.25 low). The election in mid-June will likely be the key determining factor here.  If not, the situation is still not over and Greece is going to be an ongoing flight risk.

Spain… iShares MSCI Spain Index (AMEX: EWP) is down 3.3% at $22.81 and under the prior 52-week low of $22.87.  Banco Santander, S.A. (NYSE: STD) is down 3.5% at $5.58 against a 52-week low of $5.52 and Banco Bilbao Vizcaya Argentaria, S.A. (NYSE: BBVA) is down 4% at $6.02 against a 52-week low of $5.96.

Vanguard MSCI Europe ETF (AMEX: VGK) tracks the  MSCI Europe Index, which is made up of approximately 460 common stocks of companies located in 16 European countries-mostly companies in the United Kingdom, France, Switzerland, and Germany.  It is down 2.6% at $39.85 against a 52-week low of $38.40.  The SPDR EURO STOXX 50 (AMEX: FEZ) tracks the STOXX Europe 50 Index and it is down 2.9% at $26.93 against a 52-week low of $26.10.

This is sort of funny on the surface if you don’t think about the financial and human tragedy that is unfolding.  It is not exactly as though the global economy rose this much when they launched the Euro.  Little reward, massive pain!

Sadly, Europe is starting to feel like Latin America of the 1980s and early 1990s all over again.

JON C. OGG

So the question is, ahead of a summit aimed at putting up fences in Europe to contain problems can the banks really make it.  We have heard all sorts of new stories and rumors and frankly it is hard to know what is posturing, what is malarkey, and what is reality.  Some talk about bank guarantees is out there, and other chatter is on deeper assistance.  And what about lending directly to banks but not the nations? Reuters has a speech today worth a read that underpins some of the problems and hopes for Europe given by ECB policymaker Joerg Asmussen.

A look at the banking ADRs today signals that the bank issues “may” be manageable for Greece or Ireland.  The problem is that this could just be a short-covering head fake too.  The ADRs for Spain are still in the red.

National Bank of Greece SA (NYSE: NBG) is up 4% at $1.56 against a 52-week range of $1.45 to $7.65.  The Bank of Ireland (NYSE: IRE) is up 3.8% at $4.93 against a 52-week range of $3.99 to $17.50.

Banco Santander, S.A. (NYSE: STD) is down 1.2% at $5.70 against a 52-week range of $5.52 to $11.92; Banco Bilbao Vizcaya Argentaria, S.A. (NYSE: BBVA) is down 1.1% at $6.19 against a 52-week range of $5.96 to $12.13.  An IIF report on loan losses is holding these banks down today.

And what about broader exposure?  The ADR of Deutsche Bank AG (NYSE: DB) is up 2.6% at $36.95.

Barclays PLC (NYSE: BCS) is technically not even a part of the Euro-woes as far as sovereignty, but it would be absolutely naive to think they have no exposure.  Ditto for UBS AG (NYSE: UBS) in Switzerland.  Barclays is up 2.6% at $11.44 against a 52-week range of $8.38 to $18.40; and UBS is up 1.6% at $11.44 against a 52-week range of $10.41 to $19.62.

JON C. OGG

Several media outlets report that one proposal to help fund banks, and indirectly the nations in which they are based, is to use part of the 500 billion euro European Stability Mechanism meant to bail out countries like Portugal and Spain. The Financial Times reports that discussions about the possibility heated up before the G8 summit. “Senior officials said those talks have focused on using the €500bn European Stability Mechanism to directly inject capital into banks,” the paper reported. This program might exist alongside another plan to have the European Central Bank buy the sovereign bonds of Spain, among others. The ECB has objected to similar plans in the past.

The direct bank aid program may make sense on paper. Spain, in particular, has very troubled banks. Some got into that trouble because they made large numbers of loans based on real estate. The value of that real estate collapsed during the recent recession in a way similar to what happened in the U.S. The Spanish banking sector situation is so bad that Moody’s recently downgraded 16 banks based in the country, including the huge Banco Santander (NYSE: STD). The country’s chance to help these financial firms took another blow. Spain recently got into more trouble in terms of its own bailout because it missed its 2011 deficit-to-GDP ratio goal. The government said the figure was 8.9% instead of the 8.5% it has expected.

The debate about which countries in Europe to aid is extremely complex and contentious. Even the fate of Greece is constantly debated. Should its neighbors throw what many believe is good money after bad? Maybe, if it keeps the eurozone together. But, if the leaders who have the ability to potentially bail out countries cannot decide on which countries, when, and under what circumstances, how can those decisions possibly be made bank system by bank system or bank by bank?

Douglas A. McIntyre

National Bank of Greece SA (NYSE: NBG) appears to be challenging all-time lows on an adjusted basis as shares are down 12% at $1.51 in active trading.  The Global X FTSE Greece 20 ETF (AMEX: GREK) is down 1.9% at $10.90 and this hit a new low today as Greek shares have reportedly hit lows not seen in years and years.

What is interesting is that Coca-Cola Hellenic Bottling Company S.A. (NYSE: CCH) is actually up 5.3% at $16.25 against a 52-week trading range of $14.75 to $27.40.  This outfit is the bottler of The Coca-Cola Company’s products located in Athens which distributes some 90 brands (including Coke) up into parts of the developed nations in Europe and into Eastern Europe and a few other select nearby markets.

We are seeing a mixed move in other banks in the lands of the PIIGS in ADR trading in New York. The Bank of Ireland (NYSE: IRE) is up 4% at $5.13; Banco Santander, S.A. (NYSE: STD) is down 1.5% at $5.72; and Banco Bilbao Vizcaya Argentaria, S.A. (NYSE: BBVA) is down 0.7% at $6.24.

Here is a comment from a speech from ECB President Mario Draghi today: “Before concluding, let me comment briefly on the difficult situation in Greece. Since the Treaty does not foresee anything on exit, this is not a matter for the ECB to decide. While the ECB will continue to comply with the mandate of keeping price stability over the medium term in line with Treaty provisions and preserving the integrity of our balance sheet, I want to state that our strong preference is that Greece will continue to stay in the euro area.”

Keep in mind a report from Reuters yesterday from Italian Industry Minister Corrado Passera saying that the Euro could survive even if Greece were to leave the union’s single currency. Trusting anything from any minister in Italy is a hard issues when you consider that Italy is one of the PIIGS and is a larger problem for the Euro than all other four PIIGS combined.

This is one of those situations where wording on headlines has to be closely watched… and interpretation depends upon many things.  Traders and investors will shoot first and ask questions later.

JON C. OGG

The most news out of Greece is that hundreds of millions of Euros have exited the Greek banking system on top of the Greek government not forming any coalition.  Maybe some of the cash exodus could be Greeks paying their bills and living off their cash, but some is definitely a flight of capital out of Greece to safer countries where the banks are not so dependent upon the fortunes of what would be a bankrupt nation without outside help. Is literally a few hundred million Euros the start of a run on the banks in Greece?  National Bank of Greece SA (NYSE: NBG) is down 6.5% at $1.73 in ADR trading in New York.  There is also a rather pathetic exchange traded product called the Global X FTSE Greece 20 ETF (AMEX: GREK).

Where the situation in Greece gets so interesting is that up until this year there was no exit strategy from the Euro.  The Europeans did not really have a way to boot any nation out of the Euro, and any Euro-member nation did not really have the means to exit the Euro.  Now all the politicians are saying that they want Greece to remain in the Euro and that they hope Greece stays in the Euro.  What they are really saying is that the mechanism to exit the Euro is coming into place, without really saying how it will work.

Greece is either going to leave the Euro or it is going to get booted from the Euro.  What happens after that is going to boil down to whether or not Greece can remain the isolated event or whether it merely acts as the first domino to fall.  Spain is a much larger issue, then it boils down to the wild cards of Spain and Ireland.  The Bank of Ireland (NYSE: IRE) is down only 1.4% at $4.92 and almost $1.00 above a 52-week low for its ADR; Banco Santander, S.A. (NYSE: STD) in Spain is at $5.80 on its ADR at a new 52-week low; and iShares MSCI Spain Index (AMEX: EWP) is down 2.6% at $23.59 also at a new 52-week low today.

The biggest issue, which is larger than all of the other PIIGS combined and then some, is Italy.  America has banks that are too big to fail.  Italy is simply too big to bail.  Moody’s just downgraded 26 major Italian banks and left the outlook as negative.  iShares MSCI Italy Index (AMEX: EWI) is down 3.4% at $10.51 at a new 52-week low.

What has changed in the last month is the French have gone backwards into socialism and have effectively voted out the prior austerity measures.  As financially conservative as the Dutch are, even The Netherlands reached an impasse on austerity and balancing a budget.  And now Merkel’s party suffered a regional election loss.

What sort of Euro break-up is coming is hard to know whether it is a partial break-up or just the PIIGS out of the Euro or just some of the PIIGS out of the Euro.  Either way, the path is set that the Euro is not going to have all of the same member states as it did in 2011.  If I was a betting money on Greece’s future, it would be Greece with a Drachma rather than Greece with a Euro.

Can any of the Greek banks survive a Greek exit from the Euro?  National Bank of Greece SA (NYSE: NBG) is one of the safer of the large Greek banks, yet this is less than a dime from hitting a new 52-week low on its ADRs in New York.

One thing that no one wants to admit is that the Euro was an economic version of World War III.  After all, isn’t the Euro now just a very watered down Deutsche Mark?  Also, don’t be shocked when S&P or Moody’s downgrades the banks or sovereign ratings in the lands of the PIIGS. That is assured to be the case.  The current story of the Euro is one which is not going to end in a pretty manner.

More misery to follow…

JON C. OGG

24/7 Wall St. screened out selective short interest data with the latest changes from the settlement date of April 30, 2012 versus the prior April 13, 2012 in shares of the following: Alcatel Lucent S.A. (NYSE: ALU); Banco Santander, S.A. (NYSE: STD); Bank of America Corporation (NYSE: BAC); Barnes & Noble, Inc. (NYSE: BKS); Dendreon Corporation (NASDAQ: DNDN); Diamond Foods, Inc. (NASDAQ: DMND); First Solar, Inc. (NASDAQ: FSLR); Green Mountain Coffee Roasters, Inc. (NASDAQ: GMCR); Groupon, Inc. (NASDAQ: GRPN); Human Genome Sciences, Inc. (NASDAQ: HGSI); LinkedIn Corporation (NYSE: LNKD); Netflix, Inc. (NASDAQ: NFLX); RadioShack Corporation (NYSE: RSH); Research in Motion Limited (NASDAQ: RIMM); and Sirius XM Radio Inc. (NASDAQ: SIRI).   Does this make for a “Short-Sell in May and go away!” theme?  The short interest changes are for the April 13 versus March 30 settlement dates, with selective color added if applicable:   Alcatel Lucent S.A. (NYSE: ALU) saw another rise in the short interest but this gain was massive by over 25% to 28.67 million shares in the short interest.  Based on its earnings botch, the short sellers made some real money here.

Banco Santander, S.A. (NYSE: STD) is not one of our usual short interest names but investors are back to betting against Spain and the PIIGS all over again now that austerity measures are being fought publicly.  The prior gain was a whopping 214% gain in the short interest to 55.7 million shares and the newest gain was only 2.5% to 57.1 million shares.

Bank of America (NYSE: BAC) is back to seeing a rise in the short interest after a prior drop.  Short sellers lifted the short interest by 9.9% to 142.3 million shares.

Barnes & Noble, Inc. (NYSE: BKS) saw a small increase ion its short interest, which you know helped to exacerbate that pop from the Microsoft deal while activist investors press on here.  The short interest rose another 3.7% to 19.768 million shares.

Deutsche Bank AG (NYSE: DB) is down 3.7% today at $40.70.  Banco Santander, S.A. (NYSE: STD) hit a new 52-week low this week and shares are down $0.01 at $6.02 today for its ADR in New York trading.  National Bank of Greece SA (NYSE: NBG) is up only $0.01 at $2.18 for its ADR in New York.

Meredith Whitney told Bloomberg today that first quarter bank results were boosted from one-time issues and that after a very dismal April it will be challenging in the second and third quarters of this year.  It is no wonder that investors are still betting against banks here in the United States when you see Europe in a mess and when you keep getting come-along analyst calls driving things down.

Bank of America Corporation has broken down back under $8.00 today to $7.93 after a 2.8% drop. That marks only the second time being under $8.00 for a lowest print on the day going back to early March and it is down from peak of just over $10.00 back on March 26.  Citigroup, Inc. (NYSE: C) is down less than 1% today at $32.41 in late-day trading and that is down from almost $36.00 as recently as April 18.

J.P. Morgan Chase & Co. (NYSE: JPM) is down 0.7% at $42.91 in late Thursday trading and this was a $46.00 stock at the start of April.  This one has held up better considering that it is one of the two healthiest U.S. banks in America.  Wells Fargo & Co. (NYSE: WFC) is down 0.5% at $33.40 and still at a premium to its book value and down only $1.20 from its 52-week high of $34.59.

The long and short of the matter is that investors are still abandoning Bank of America even though the bank showed only a small exposure in total to the PIIGS in Europe.  The fear is either surrounding more mortgage woes or more European bank woes… or both.

JON C. OGG

S&P actually raised its rating on Greece this morning, but this was a technical upgrade rather than any real improvement.  The fears elsewhere are outweighing the hopes right now as French and Dutch austerity measures are now being fought in the political scene.  Even more fresh data from various purchasing managers readings from France, Germany, Spain, and elsewhere are only adding fuel to the fire that the recessionary climate in Europe is worse than many have hoped.

Greece saw something highly unusual today: A RATINGS AGENCY UPGRADE!  After the distressed debt exchange, Standard & Poor’s removed the SD rating (selective default) up to a rating of “CCC” and said that the long-term outlook is STABLE.  The short-term foreign and local currency sovereign credit rating was raised to “C” from the “SD” rating and the outlook is now STABLE as well.  Unfortunately this is of no help to National Bank of Greece SA (NYSE: NBG) with its ADRs down 4% at $2.19 in New York trading.

More fears are coming up in Spain as the bank leverage is high.  Banco Santander, S.A. (NYSE: STD) is down almost 6% at $6.01 in New York trading, and the prior 52-week trading range was $6.08 to $12.48. Banco Bilbao Vizcaya Argentaria, S.A. (NYSE: BBVA) is down 5.5% at $6.45 and shares briefly dipped to a 52-week low today under the prior 52-week range of $6.43 to $12.96.

Can you leave Ireland out?  No, and the ADRs of The Bank of Ireland (NYSE: IRE) are down 4.8% at $5.92 in low-volume trading mid-day in New York.

Deutsche Bank AG (NYSE: DB) is down 4.5% at $452.16 in New York trading of its ADRs.

As Switzerland is being considered a haven, there is a mixed reaction. UBS AG (NYSE: UBS) is up 1.3% at $12.84, while Credit Suisse Group (NYSE: CS) is down 4.2% at $22.51 in New York ADR trading.

England is certainly not in the Euro, but the banks there have deep ties to dealings in Europe.  Barclays PLC (NYSE: BCS) is down 4.4% at $13.88 and Royal Bank of Scotland Group plc (NYSE: RBS) is down 2.4% at $8.02 in New York ADR trading.

JON C. OGG

The standout research calls this last week were in the following stocks: ABB Ltd. (NYSE: ABB); Allison Transmission Holdings, Inc. (NYSE: ALSN); Amazon.com Inc. (NASDAQ: AMZN); Apple Inc. (NASDAQ: AAPL); CafePress Inc. (NASDAQ: PRSS); Chipotle Mexican Grill, Inc. (NYSE: CMG); Demandware, Inc. (NYSE: DWRE); Hess Corporation (NYSE: HES); Infosys Ltd. (NASDAQ: INFY); McDonald’s Corporation (NYSE: MCD); SanDisk Corporation (NASDAQ: SNDK); Wal-Mart Stores Inc. (NYSE: WMT); Zynga, Inc. (NASDAQ: ZNGA); Seagate Technology PLC (NASDAQ: STX); Western Digital Corporation (NYSE: WDC); Banco Santander (NYSE: STD); and Banco Bilbao Vizcaya Argentaria, S.A. (NYSE: BBVA).

We have outlined a summary of each call and added in color on each to show why (and if) the analysts made calls worth watching.

ABB Ltd. (NYSE: ABB) is about to see a drop due to its ex-dividend date and we saw two simultaneous downgrades after an acquisition strategy was outlined this last week.  On Thursday ABB shares were downgraded to Neutral at JPMorgan and they were also removed from he coveted Conviction Buy List but maintained as a ‘Buy’ over at Goldman Sachs.  This one lost about 5% from earlier in the week by the time Friday’s close came around.

Allison Transmission Holdings, Inc. (NYSE: ALSN) saw its quiet period end on Tuesday.  Shares recovered on Friday due to stronger numbers elsewhere but the stock had been weak after the coverage started.  We saw the following initiations: Started as Outperform at Baird; Started as Neutral at Citigroup; Started as Neutral at Credit Suisse; Started as Neutral at Goldman Sachs; Started as Neutral at J.P. Morgan; and Started as Hold at KeyBanc Capital Markets.

Amazon.com Inc. (NASDAQ: AMZN) was a Johnny Come-Lately call where several analysts decided all at once that they had to upgrade the online retail giant after it blew out its earnings:  Raised to Buy at BofA/ML; Raised to Buy at Goldman Sachs; Raised to Buy at Nomura; Raised to Buy at SunTrust Robinson Humphrey.

Apple Inc. (NASDAQ: AAPL) blew the door off the hinges this last week with earnings.  While it was already rated and effective buy rating, the new street-high official target is $1,111 and that will make it the first company worth more than $1 trillion by market cap if it comes true.  This newest street-high call came from Topeka Capital Markets’ Brian White this last Wednesday.

CafePress Inc. (NASDAQ: PRSS) saw its quiet period end this last week and these are the calls we saw for analyst initiations: Started as Buy at Janney; Started as Outperform at Raymond James; and Started as Overweight at J.P. Morgan.  The initiations being positive did not help the shares.

S&P’s downgrade took the long-term and short-term ratings down to BBB+/A2 from A/A-1 and today’s review reflects a view of significant risks to Spain’s economic growth and budgetary performance.  The review also cites a deterioration in the budget deficit trajectory from 2011 to 2015.  If you think that the banks are safe guess again: S&P sees a higher chance that Spain will have to throw in additional support to the Spanish banking sector.  There is even the call that GDP in 2012 will contract in real terms by 1.5% this year and will contract 0.5% in 2013.

Today’s downgrade has a caveat and that os that S&P could revise the negative outlook to Stable if the risks to external financing conditions begin to subside.  The question to ask is how that can happen right now… It also noted that Spain’s new government has been implementing a comprehensive set of structural reforms.

And the flip-side on that negative outlook again is that another downgrade could come up general government debt goes to above 80% of GDP during the period of 2012 to 2014.

Banco Santander, S.A. (NYSE: STD) closed down 2.6% at $6.35 in New York and shares are down another 2% at $6.22 in the after-hours session.  The 52-week low for the ADR is $6.08.

Banco Bilbao Vizcaya Argentaria, S.A. (NYSE: BBVA) closed down 1.4% at $6.83 today on its ADR in New York and the after-hours session is light but shares are indicated down under $6.80.  The 52-week low is $6.43.

Will Spain allow the employees of S&P to ever eat paella again?

JON C. OGG